Wednesday, 21 December 2016

Impact of UK Austerity on Scotland's 2017-18 Budget

When Finance Secretary Derek Mackay announced his party’s Budget last week, he came under pressure for many reasons, not least because buried in the detail was the fact that the SNP are imposing a £327m cut in central Government support to local government services1.

Mr Mackay defended his budget by saying "Let me be clear, I will not pass the costs of UK austerity on to the household budgets of the lowest-income taxpayers"2 and in the budget document itself stated “The UK Government’s approach to public spending is having a significant detrimental effect in Scotland”3.

The problem here is that - as so often with the SNP - the rhetoric is plainly at odds with the facts. I’ve taken the time to study the actual figures in some detail, and it’s clear that attempting to blame UK Government austerity for cuts in Scotland’s 2017-18 budget is nothing short of blatant deception.

All you need to understand to realise that Mr Mackay is trying to pull the wool over our eyes is this simple graph showing the Total Scottish Budget in real (inflation adjusted) terms over the last 10 years. [Note y-axis does not start at zero]

I expect a lot of people in Scotland will find this graph
hard to believe. After all, we hear so much from the SNP about Tory austerity
that few would expect the real-terms trend in Scotland’s budget to be upwards
over the last four years – but that is the reality. In fact, if you look
carefully at the graph, you’ll see that Scotland’s Budget is now (just) higher
in real terms than it was in 2009-10 before austerity cuts started to bite.

How come this plain reality isn’t common knowledge? Well the
simple fact is that the SNP have gone out of their way to hide this
information. If you take the time to look up last week’s budget report, you’ll
find the summary tables they include show data for 2010-11 but then just miss
out the four intervening years to 2014-155. That’s the first step they take to
disguise the reality of the rising budget trend.

The second step they take is to bury this Total Budget information deep in an
Appendix on page 169 of the report. They use the up-front summary tables to
instead focus on a few sub-totals that exclude things like Annually Managed
Expenditure (AME) which, for example, pays for NHS and teachers’ pensions4.

In some highlighted figures they even exclude Capital
Borrowing4. This is a devolved power that enables Scotland to spend more by taking
on further debt in addition to that we share with the rest of the UK. It’s a
critical and growing source of funding for Scotland and it’s hugely misleading
to focus on figures that omit it.

The third step they take is to distract from the budget year
that’s actually being announced by providing a pretty meaningless longer term
forecast. The longer term forecast they made last year has already been shown
to be far too pessimistic6. To illustrate how flaky their latest forecast is,
despite the clear commitment from the SNP to deliver a 50 per cent reduction in
the “overall tax burden of APD” (Air Passenger Duty), their forecast makes no
allowance for this £171m headline revenue loss4.

As an aside, it’s also the case that by the end of their
forecast period the Scottish Government will control roughly half of the
revenue raising powers involved. So when they forecast a real terms decline in
“Fiscal DEL” (a subset of the total budget that excludes among other things, AME
and capital borrowing), the Scottish Government appears to be forecasting that
their own economic strategy will fail.

So by missing out intervening years, focusing on a measure
which excludes very significant sources of revenue and stretching to an
unrealistically pessimistic forecast year, the SNP are able to engineer a
figure which appears to suggest “Westminster austerity” is causing the budget to
decline. In fact, as the graph clearly shows, the opposite is true.

The reality of our fiscal framework agreement with the rest
of the UK is such that the SNP is lucky enough to preside over a spending
budget that’s rising in real terms.

The fact that the SNP are cutting Central Government funding
to local government is their choice, not something that’s forced upon them - just
as the fact that the SNP don’t use their income tax and benefits top-up powers to
reduce tax for low-earners, redistribute wealth and address inequality is their
choice.

Next time you hear UK austerity being blamed for specific Scottish budget cuts, remember this simple fact: over the four years from 2013-14 to
2017-18, the Total Scottish Budget has been increased in real terms by £1.9bn or 5.4% .

It really is
long past time the SNP stopped blaming Westminster for their own failings.

******

Notes

1. Table 9.02: Local Government and Central Government Grants to Local Authorities

20 comments:

Really interesting analysis and throws up some important questions for Nationalists and Unionists alike. The more nuanced among the SNP's support should be asking; where is all the money being spent, if cuts to local government and the education budget aren't the fault of Westminster austerity?

For unionists, how can they justify maintaining the Barnett formula if austerity has little or no impact on Scottish spending? Scotland's ballooning deficit is one of the main reasons the UK can't reduce the deficit and keeps missing targets to make a surplus. Our budget could be next in the firing line. Especially now we have increased fiscal powers of our own.

I don't like UKIP's politics one bit but Paul Nuttal is an extremely effective communicator and he gets plenty of airtime in the media. If he follows up on his promise to exploit English nationalism, then Barnett could become an election issue ahead of the GE in 2020. Labour and the Tories will be forced to confront the issue too when key marginals come into play.

The only people suffering real austerity in the UK are the English - we are the ones who bore the brunt of the cuts; payments to English Local Government weren't protected the way that payments to the Devolved Parliaments was - and of course we don't have the benefits of additional Barnett Formula top-ups as well.

And our thanks for this is to be constantly demonised by our "Celtic" neighbours.

People are fond of talking about the "Westminster bubble", but there is a "Scottish" bubble as well. If the English were allowed to vote on Scottish Independence you'd be Independent.

Assume, for one moment, that the current Scottish government does not have independence as its primary objective; or, indeed, that it has no interest in independence. Then try and explain or understand the Scottish government's strategy. If you are correct in your forensic analysis, as I believe you are, the picture is bleak. For we have a Scottish government whose principal aim is to obfuscate and obscure the true economic picture. Call black white and vice=versa. The deliberate distortion is both Orwellian and evil.

But the fact that the drivel goes unchallenged by academic Scottish economists and others indicates the level of rot and plain cowardice that has invaded the Scottish body politic. In other, more robust, democracies, one might expect an opposition to point out the economic lies and half-truths, and one might also hope for an independent review agency, such as the OBR, to undertake the job of providing clear, intelligible explanations that are free of economic bias.

As it is, nationalistic Scotland is a smaller version of the prickly nationalistic governments in Poland and Hungary, both of which love to bite the hand that feeds them their EU bail-outs. On a bad day, comparisons between Scotland and Venezuela don't seem too far fetched, as both are struggling with the loss of oil revenues.

If we now re-admit independence as a relevant political factor, it is difficult to avoid the conclusion that the attempted subversion of Scottish political discourse by the SNP is a case of the end justifying the means. And subversion is absolutely the intended outcome. However, the Scottish electoral butterfly, to its great credit, has managed to avoid Sturgeon's butterfly net. But we all know the outcome if she succeeds in capturing it. Not pretty.

So, once again, keep up the good work. I think you will win, but the fight, I'm afraid, will be torrid.

Why is borrowing akin to funding? And how is the borrowing repaid? Presumably out of future funding or from the income tax raising powers. In which case I would suggest its fair that it stands alone from any analysis of the block grant?

1. It's not an analysis of the block grant, its an analysis of the budget, of spending

2. If the UK borrows on our behalf (which is where other funding comes from at the margin) we have to play our part in paying that back too - so if you want to exclude Scottish borrowing you'd need to exclude our share of UK borrowing too (which would clearly be ridiculous as we'd have an unfunded budget)

Just read a post on Think Scotland's site on "The UK’s liabilities to EU financing mechanisms" at: http://www.thinkscotland.org/todays-thinking/articles.html?read_full=12994&article=www.thinkscotland.org and wondered if you'd ever taken this into account in your blog posts?

Happy New Year to everyone.Although reading your article I am no longer happy.During the brexit process there was a huge amount of deception and false statementsI do not understand => assuming you are right- how this isevere deception goes unchallengedIts dishonest and should not be tolerated in public life.

is it in the remit of civil servants to collude with these lies?there is a campaign by Marcus ball http://www.brexitjustice.comthis was launched after the referendum to bring to book exactly the behaviour we see now from our unqualified in inexperienced Finance minister - he of course does not do this by himself.

We need accountability and honesty in public lifeWhen i look at the behaviour by the Theresa May organisation around article 50 i find it extremely depressing the calibre of the people who are now the key decision makers for our country,The lack of analytical focus on these policies by the BBC and others is awful.The fact that Nicola talks about joining the EU (which would be great) but neglects to outline the financial consequences - loss of barnet plus funding for EU contribution the fact that we are way way beyond the 3 % deficit etc etc

If a little honesty appeared it wold be possible for the people to come to a considered decision.

When will those who push for independence say - " yes Independence great ! - I am happy to pay xx more tax because I want be independent and i won't pretend an average tax payer in scotland you will certainly in the end up, I believe, hugely worse off.There are some who will say its worth it but as we don't have the facts of our current situation out there in the mainstream media sadly this discussion has never started

AME is not available for ScotGov to spend. It's pensions etc which are only administered by ScotGov. DEL is the ONLY relevant figures re any " block grant" as it is the only money that they can spend within TME. The " budget" could be £100 BILLION as TME but if DEL is cut , as it is annually, then the real spending capability is cut as well. I'm sure you know this but choose to ignore that simple fact.Why does your wee chart only have ONE indication line..there should be two.

See the text where I refer to note 4. this covers your point explicitly - in note 4 follow the link there and you'll see graphs with lots of wee lines on them - I'm not ignoring anything and I provide a full audit trail.

If you read that note you will also see that DEL is not "cut annually" as you assert.

I guess you prove my point that that Scottish Governments misleading representation and ridiculous spin has succeeded in fooling many people (yourself included).

I am interested in the likely upcoming independence debate being as fact-based as possible.

Assuming your figures are correct, (I have neither the time, nor inclination to try and pick them apart - I will assume you have done a thorough job) what you appear to be saying is than the Scottish budget, in real terms, is predicted to go up by 2017/2018 and continue that way into 2020.

I may be misunderstanding something, but as far as I can see the predicted figures for the proportion of DEL spending that will be raised by Scotland is increasing significantly year-on year to 2020.

Below are the figures from pg.3 in the budget.

For each year I have given the cash terms total DEL, [then the proportion raised in Scotland through devolved powers] (then the net reduction in DEL from HMT

What this says to me is:1. In cash terms the DEL budget is marginally increasing to 2019, then slightly decreasing in 20202. The proportion raised in Scotland is increasing year-on-year3. The block grant is reducing year-on-year to offset this.4. Each year the amount raised in Scotland is slightly higher than the amount the DEL is reduced by HMT)

Overall, it is Scotland's planned increase in revenue raising that will keep the budget high, not more spending from Westminster.

I'm more than willing for critique my analysis - no attacks though please!